Sitting at the top of today’s FTSE All-Share leader board is software provider, Anite (LSE: AIE), which is the subject of a takeover offer worth £388m. The acquiring company is Dutch manufacturer of test and measurement software, Keysight, which will pay £1.26 per share in cash for Anite and, with the full support of all of Anite’s directors, the deal looks likely to go through.
Of course, it will require shareholder approval but, with Keysight receiving irrevocable undertakings from over 15% of Anite’s shareholders, it seems likely that it will gain sufficient support to progress. And, with the deal valuing Anite at a 22% premium to its closing share price yesterday of £1.03, the offer appears to be generous – especially since it is an all-cash offer.
A Good Deal
Clearly, Keysight and Anite’s management teams believe that the deal is a good one for Anite. As well as the usual synergies and shared costs that are a benefit of most mergers and acquisitions, the deal will see a bigger company better able to take on rivals and support customers in an industry where size and scale are becoming increasingly important. Furthermore, Keysight believes that Anite’s software expertise will complement its own hardware expertise and will allow the joint business to better serve the increasing customer consolidation that has become a feature of the markets in which the two companies operate.
A Bad Deal
While the offer price does represent a substantial premium to Anite’s closing share price from yesterday and the combined entity looks set for a very bright future, the deal may not be such a good one for Anite’s shareholders. Certainly, they will be pleased with today’s share price gains, but Anite’s share price could have moved considerably higher over the medium term.
That’s because it is expected to post impressive earnings growth numbers over the next two years, with growth of 19% forecast for the current year, and 11% pencilled in for next year. Despite this, Anite’s current share price of £1.27 (which is slightly above the offer price of £1.26) equates to a price to earnings (P/E) ratio of 19.1 which, when combined with its growth rate, equates to a price to earnings growth (PEG) ratio of around 1.2.
This represents growth at a reasonable price and so it could be argued that Anite’s share price had further upside above and beyond the £1.26 offer from Keysight. In fact, a level similar to that reached in 2012, when Anite’s share price hit £1.60, could have been achievable in the coming years.
Looking Ahead
Whether or not it is a good or bad deal for Anite’s investors, it appears likely that the proposed acquisition will become a reality. And, while Anite’s share price may have moved higher in the long run, the company’s investors will at least have the cash available to invest in other, similarly exciting, opportunities.
